The stock has fallen more than 50% since the top in 2014 because of the combined effects of several factors:Recessions/weakness in emerging markets such as Russia, Brazil and China. This factor has negatively impacted the company’s results as it has led to an appreciation of the USD against other currencies. Falling income and currency disadvantage have weighed on tourism and tourist spending in the US, leading to a contraction in sales of fashion items. Michael Kors was not immune to the general weakness in the industry.The second factor is the deceleration, peak and consequent downtrend in comps, which has fueled a short case for KORS. Bears believe that Michael Kors’ success is the result of a fad, which has led to a boom and bust in sales. Moreover, bears believe that the heavy discounts in department stores are threatening the brand status and attractiveness.
Michael Kors (NYSE:KORS) stock has had a rough stretch recently as it has gone from being looked at as a growth stock to a value stock. This type of change does not signify that Michael Kors was a fad. It just shows that the double digit same store sales growth was unsustainable. The realization caused the stock to have multiple compression. I have been too early in recommending the stock as it has fallen 20% from my initial article and is flatfrom my most recent one. I am still maintaining my bullish stance on the stock. I will be starting a position in the stock when my trading account opens in the next few days. In this article I will update you on what I thought of the latest earnings report. I will also discuss how the launch of the Apple Watch and the roof collapsing at one of its warehouses will affect the stock.
The launch of the Apple (NASDAQ:AAPL) Watch shouldn’t have that much of an impact on Kors overall because its watch sales are a small part of the total revenues. Total revenue last quarter was $1.3 billion while total licensing which includes watches was $51.5 million. This licensing also includes jewelry, winter outerwear, and eyewear. While the licensing business is a small percentage of total revenues, the reason why am mentioning it all is that it has 100% gross margins, meaning most sales flow straight to the bottom line. In order to combat Apple, Michael Kors cited Fossil’s deals with Intel and Google in the wearables space. Management made the following statement on the conference call regarding it outlook for this category.